Whenever the market rolls over into a "dip," most investors are
inclined to focus on why it happened. Though I'm always
curious about the reasons behind a pullback, as a
trader I'm more interested in the potential profits
to be gained from the price movement. This means viewing
any move­ as a pathway to another profitable
stock trade setup.

Regardless of market conditions you can make money trading Bullish Bounces and Bearish reversals

Realizing the power of momentum associated with
trend, I prefer to enter trades in the same direction
as the primary trend for the time frame I've chosen
to trade. And being somewhat risk averse, I also prefer
to anticipate price levels where positions can be
entered in stocks with very low risk. Because of this preference
I lean toward trades that are likely to take place
near support or resistance levels.

Bounces and reversals rank high on the RightLine
list of set-ups to trade. My two personal favorites
in this group are the "Bullish Bounce" and the "Bearish
U-Turn." Both of these trades provide excellent profit
opportunities, yet they don't require you to be directionally
biased or to act on "blind faith" - the belief that
the market is "definitely" going to move favorably.

The "Bullish Bounce"

This stock trade Set-up first looks to determine the current
trend, and as the name implies, the trend has to be
bullish. Once the strength of the trend is confirmed,
we will watch for a normal pullback to take place.
There are certain criteria that qualify the pullback
as "normal." Included is the distance the stock drops
in proportion to price, and the length of time it
takes to complete the decline.

The final and most important requirement for a Bullish
Bounce set-up is determined by how the stock price reacts when
it comes in contact with a support level, such as
a specific moving average. The preferred reaction
occurs whenever price dips to the support level during
intra-day trading, then reverses and moves up a certain
percentage of the day's high-to-low range.

Once the Bullish Bounce Setup is in place, we want
to see a confirming sign that the previous upward
trend is about to resume. This is usually a price
move that takes out a short-term technical resistance
level, such as the high of the Set-up day, and should
normally occur within one or two days after the Set-up
day. That move is our signal to immediately enter
the stock. Once a position is bought, we always place
an Initial Stop for protection, and then follow up
with a Trailing Stop as the trade moves favorably.

Here is an example of a Bullish Bounce Play setup:

The "Bearish U-Turn"

Similar to the Bullish Bounce, this stock trade looks
for a strong trend. However, instead of an upward,
bullish trend, the Bearish Setup looks for a downward
price trend. Once the trend is confirmed, we wait for a
normal rise to take prices back up to a selected moving
average, which serves as resistance. Just as in the
Bullish bounce, the criteria for "normal rise" includes
the distance the stock rises in proportion to price,
and the length of time it takes to complete the move
up to the chosen resistance.

The most important aspect of a Bearish U-Turn set-up
is determined by how the stock price reacts when it comes in
contact with the resistance level, the specific moving
average. The preferred reaction takes place when the stock
rises to the resistance level during intra-day trading,
then reverses and moves down a certain percentage
of the day's high-to-low range.

Once the "Bearish U-Turn" Setup is in place, we
watch for a confirming sign that the previous downward
trend is about to resume. This is usually a stock price
move that takes out a short-term technical support
level, such as the low of the Set-up day. This move
will normally occur within a day or two after the
Set-up day. The move is our signal to immediately
place an order to sell the stock short. Once a position is entered,
we always place an Initial Stop for protection, and
then follow up with a Trailing Stop as the stock trade moves
favorably.

Another positive aspect to both of these trades
is the tendency for the stock price to gain momentum as it moves
away from the point of entry. They often become positive
very quickly, allowing the initial stop to be moved
to the break-even level. At this moment the position
essentially becomes a "free" trade with no risk of
loss - as long as the stop is only moved in the direction
of the profit.

Here is an example of a Bearish U-Turn Play setup:

Bottom line: These types of reversal stock trades provide
excellent opportunities when filtered through the
RightLine Risk Control Calculator. Be sure to watch
for Bullish Bounce and Bearish U-Turn stock trades in each issue
of the RightLine Report. They're certainly among my
favorite stock setups, and I suspect you will like them
too.